How the main allowances work, and why planning early makes a difference.
How inheritance tax works
Inheritance tax is generally charged at 40% on the part of an estate above the available nil-rate band, which at the time of writing is £325,000 per person.
The residence nil-rate band
An additional residence nil-rate band of up to £175,000 may apply when a main home passes to children or grandchildren. It is gradually withdrawn for estates worth more than £2 million.
Spouses and civil partners
Unused allowances can usually be transferred to a surviving spouse or civil partner, which means a couple may be able to pass on significantly more free of tax.
Lifetime gifts and the seven-year rule
Gifts made more than seven years before death generally fall outside the estate. Gifting during your lifetime can therefore be part of a long-term plan, provided it is affordable and properly recorded.
Pensions from April 2027
Pension funds are due to come within the scope of inheritance tax from April 2027. Many families who relied on pensions passing outside the estate will need to review their plans.
General information only, not personal advice. Rules change and depend on individual circumstances. Investment Trust Limited is not authorised or regulated by the Financial Conduct Authority. Last updated 20 October 2026.